When Is a Startup No Longer a Startup
Startups are known for their passion, their endless drive, their single-minded focus and ability to navigate beyond insurmountable roadblocks to find success, even when it seems unlikely.
But while being a startup is an exhilarating ride, somewhere along the way, things change.
Your company has made it through the first year, and past the difficult hurdles in the beginning. You're seeing growth and maybe even profitability. One day, you realize that your company is no longer operating on a low-profit margin, and you're hit with the reality that you no longer need to work around the clock, or desperately try to solicit funding from angel investors or venture capitalists to make it.
If this sounds like you, congratulations! You're out of the startup phase, and transitioning into a growth-stage company.
But if you, like so many other startups, are finding it difficult to pinpoint where you're at in terms of growth, and uncertain about whether your company still qualifies as a startup or if you've crossed over into a fully-grown company, you're not alone. Many startups feel stuck in limbo, passing themselves off as a startup while deep down, wondering if maybe it's time to start thinking of themselves as a growth-stage company.
While opinions vary considerably across the board on what constitutes a bonafide startup, there are a few telltale signs that a company has outgrown the startup phase, and needs to move on. After all, growing up's a fact of life, and it signifies that exciting times are in store for your company.
Let's take a look at a few sure signs that you've moved out of the fledgling phase, and into the growth-stages with your company.
1 - When You Have a Plan
While the beginning stages of your company, you're still trying things out to see what works. Once you land on a great idea though, you'll be able to perfect your process, and product delivery. You'll start to develop a system by which you can operate. This ensures quality, and efficiency, two things you'll need if you want to grow. When you start seeing MoM demand for your products and services increase by hundreds of percent, it's a sure sign that you're on your way out of the startup phase.
“When the company has found a sustainable business model” - Brett Martin, Sonar
There are some caveats, however. 1. This type of momentum has to prove to be consistent. It can’t ride of the curtails of one good week or month, or be the byproduct of Justin Bieber mentioning your product over Instagram. In order to understand if your company is transitioning out of startup phase, is to get a clear look at current and projected revenues and margins. Are you consistently trending upwards? (Beware the hockey stick curve) (See point #5) 2. Your company won’t fold if one person leaves, including a co-founder. An obvious sign of your baby growing up, is when you realize that your role as co/founder is no longer as important as it once was. It means that if you left, or if a top executive left, your company would have little issue in finding a replacement or minding the work without them.
2 - When You Start Attracting Funding
When you're first starting out, you're having to spend a significant amount of time seeking funding, whether through venture capitalists, angel investors, crowdsourcing websites like Kickstarter, or even by bootstrapping it and taking out loans. But once your company gets off the ground, you'll be able to start scaling back your efforts to solicit outside funding. You may even find that investors start coming to you. If you've reached the point in your business where people are knocking on your door asking to invest, then you can safely assume that you're moving on out of the startup stage.
3 - When You’re Acquiring Other Startups
Once you've reached a point that you're acquiring other startups, you're no longer a startup any more. (Sorry Google!) Take, Uber and Pinterest, for example. They're both six years old, and have long been considered startups. But today, they're acquiring other companies themselves, and have quickly outgrown this stage.
4 - When Your Brand Is Able to Speak for Itself
After a while, you'll no longer need to sell your company by showcasing your previous clients as examples for your prospects. “The brands you’ve previously worked with are no longer as important as your company’s own brand, which has gained recognition of its own in the marketplace,” says Mark Fitzpatrick, founder and CEO of RUHM Luxury Marketing.
“When it transitions from growing to succeeding, interesting to useful, and promising to delivering.” Carl, human experience designer.
Fitzpatrick points to Ogilvy & Mather, an established marketing and communications agency with 450 offices and in 163 cities worldwide. “They don’t need to sell prospects on who they’ve worked with over the 60-plus years they’ve been in business,” he says. Instead, companies recognize their name, and want to partner with them.
5 - When You See Steady Growth and Profitability
Financial metrics have long been used to measure growth stages in companies, and there's much debate about which numbers best indicate when a company's out of the startup phase. This includes everything from profit, employees, and net worth, to how many rounds of funding it's had.
TechCrunch writer Alex Wilhelm has made a helpful attempt at describing what constitutes a startup. According to Wilhelm, if a company meets or exceeds any of the following, it is no longer be considered a startup:
- $50 million revenue run rate (forward 12 months)
- 100 or more employees
- Worth more than $500 million
While Wilhelm's point is well taken, and illustrates that after a certain growth point, a company usually can't be considered a startup any more, it's important to realize that financial markers are just part of the picture. There are plenty of companies out there that don't have 100+ employees, or a net worth of 500 million, yet they are definitely no longer startups. When determining whether your company's still in the fledgling stages, it's important to consider other factors in addition to financial metrics. This includes your state of mind, company culture, and internal operations.
6 - When Your Focus Has Shifted
Steve Jobs once said that he loved the start-up architecture, and considered Apple to be the biggest startup on the planet.
Of course, Apple wasn't a startup in the typical sense. What Steve Jobs was referring to wasn't the company's financial markers, instead, he was hinting at the “startup mindset.” Apple's operational structure, the nimbleness by which it's able to operate, and commitment to new ideas and innovation.
Startups have a strong focus on the team, and on the bare bones production and delivery, and are less focused on developing or defining the company's internal structure or even scaling the company. Instead, most resources are devoted to the product; and used on developing it, perfecting it, and presenting it. Over time, though, this focus starts to become more complex. There are margins to be met, and profits to be made. The drive is no longer simple product perfection, but instead, there is a keen focus on growth, and profitability.
In the end, while numbers are important, it's important to focus on your business itself and its performance, when determining whether your company is transitioning out of the startup phase. Where is your focus? Do you have a plan? Have you reached a point where the company is able to function in your absence? Look at how your business is running when making the call.
Finally, while it's important to recognize once you've hit those key milestones in order to mature into a fully-grown company, it's also important to never lose that startup spirit. As Nick Woodman, CEO of GoPro advises, “never let yourself stop being a startup.” While you can't expect your company to continue on the same trajectory into the growth-stages, it's also important to hold onto the passion and drive that you had from the beginning. Finding a balance is key to having the best of both worlds as a company today.
Many companies that are loving the startup life may find it difficult to move on and embrace adulthood. After all, startups are known for their casual, laidback attitudes, their relentless passion, and single-minded focus and drive. But while maintaining the enthusiasm of a startup is one thing, being stuck in perpetual adolescence, will only lead to stagnation, frustration, and eventual burnout.
Instead, recognize that transitioning into the growth-stages is an important milestone, and signifies the start of your next chapter. Most companies don't make it out of the startup phase, so embrace it, you've earned it, after all. Take the time to acknowledge this important step –it's something to be excited about!
Where are you at? A startup –or transitioning into the growth-stages?